Soaring Crude Oil Prices

It is interesting to listen to the media present their ideas of why the oil prices are going up.  So here is my understanding of what is going on.

Think about one of the most heard advertisements over the last 10 years... Gold is going higher. Higher... HIGHER.  Why is gold going higher... Because it is a hedge against inflation.  As the dollar becomes less valuable because the fed has to print money to purchase our debt... (oxymoron),   Gold goes up.  Gold is a commodity, and as the dollar value goes down, the price of commodities goes up.  That is the natural way of the markets.  So... crude oil is a commodity.  It is priced in dollars.  Like gold, corn, soybeans, wheat, beef, pork, orange juice, sugar, lumber and other markets.  All these markets are priced in dollars and traded on the open world market.  Because they are such.... they are open to investors and speculators putting their dollars in as a hedge against inflation.

It is not the investor and speculator participation that drives the price up as much as it is the dollar value.  The investors to some degree create a market place for the price fluctuation as well as making liquidity for moving in and out of the market, but they have a limited ability to push the market very far because of volume.  Volume and open interest shows the traffic of the market, and the number of contracts held open over night.  Contracts can be held for one day or for the life of the contract, but the contract has an expiration date and must be settled on the expiration date. Total open interest in the crude market is at the time of this writing down, not up.

Look at the chart below.  Crude oil prices follow the red and green line. The dollar index prices follow the double gray lines.  Reference to these lines is only to made to identify which prices belong to which market and have no relevance to this discussion otherwise.

What you see in this illustration is the reaction to market forces other than speculation.  If one wants to talk about real causes... it is directly related to the spending and economy created by the Federal Government.  The more money they spend that we don't have, the further these price fluctuations will go.

Put the blame where it is deserved... on congress.... email this link to everyone you can think of that has anything to do with government or you hear blaming the speculators for their involvement in these markets.  It simply isn't their fault.

Iowa White House President...